Why You Would Look At Median House Prices
It is any investor’s dream to buy in an area which has historically registered smart capital growth. Add to this the time-tested principles of buying in a fast-developing neighbourhood and moving in sync with shifting paradigms- proximity to urban location, cafe culture, among other things. This said, the importance of researching median prices cannot be overestimated. After all, it gives you a rather precise idea of how property is priced for the given area.
Before I talk about the importance of knowing median house prices vis-a-vis mean/average house prices, let me define both the terms for you.
Average house prices
Let us say there are 51 homes in a suburb. To find its mean or average price, you will have to add the price of all 51 of them and then divide the sum by 51.
Median house prices
For finding its median price, you need to put together all the homes in ascending or descending order of price and look for the home placed at the exact centre- in other words, a home which is priced below 25 homes and above 25 homes (for a set of 51 homes). If there were 201 homes in the sample set, the median house price will be price of the home which has 100 homes priced above it and 100 homes below it.
For even numbered sample set
I know you may ask what happens when there is even number of homes in a sample set (50 or 100 or 200 homes). While you may not require going deep into the calculations as a buyer, let me still answer this for your academic interest.
Let us assume that there are 100 homes in the sample. This means that the home placed 50th on the table from the top has got 49 more expensively listed homes and the home placed 51st on the table from the top has got exactly 49 homes below it. For finding the median price, you just need to add the price of the 50th and the 51st placed homes and divide the sum by 2.
Why is median value preferred?
The reason why we look for median house prices and not average prices? They are pretty immaculate reflection of the prevailing prices in an area. You can figure out that the average price might give a skewed reading even if 5% of homes in the sample are listed at abnormally high or low prices. This cannot be the case for median prices.
It is understandable that a few lean months here and there might bring in an element of puzzle in the median prices too. This is why experts always ask you to make your judgement based on long-term medians.
By the by, don’t take the ‘median’ route for your Christmas celebrations…..go crazy….Merry Christmas!
How much importance do you accord to the median housing value?